How is your hotel performing? Many hotels leverage tools like STR reports to answer that question, but a STR report is only effective if you have picked the right properties (direct competitors) to compare your hotel against.
Without context, your ADR and RevPAR might as well be numbers you pull out of a hat. A competitive set, or compset, can add necessary context to help revenue managers, leadership teams, and owners understand a hotel’s performance relative to similar hotels in the market. But in order for compset data to provide this valuable benchmarking context, the compset must include hotels that are close competitors of your hotel.
In this article, we’ll explain the power of selecting the right competitive set and walk you through the process of building and maintaining a solid compset. Then, you’ll be able to use your compset to unlock insights and opportunities to capture higher ADR and more occupancy in the market.
What is Competitive Set Analysis in the Hotel Industry?
If you’ve ever spoken with a hotel revenue manager, you’ve probably heard them say “competitive set” or “compset” at least a few times. What are they referring to? A competitive set (within the context of the hospitality industry) is a group of hotels that are close direct competitors to your hotel. These competitor hotels are in the same geographic area as your hotel, sell roughly the same rates, have a similar number of rooms, target the same types of guests, earn comparable reviews, and offer similar services and amenities. Typically, competitive sets include four to ten hotels. Since the market might include significantly more than four to ten hotels that could be considered close competitors, one hotel might monitor a few different competitive sets. For instance, an independent hotel with meeting space might study one compset that includes group- and corporate-focused hotels and another with leisure-focused hotels.
How Do I Choose a Competitive Set? A Step-by-Step Guide
Now that you understand what a compset is and why it’s important, you may be wondering how to create the best compset for your hotel. This process includes understanding your own hotel, researching hotels in your market, and narrowing down similar hotels to the ones you want in your compset.
The first step in selecting a compset is to make sure you have a solid grasp of your hotel’s place in the market. It can be helpful to conduct a thorough audit of your own offerings, taking note of your hotel’s characteristics in a spreadsheet. Some items to map out are your ADR, guest review scores, amenities, meeting space, star rating, F&B options, facilities (spa, pool, gym, etc.), pet policies, room types (suites, connecting rooms, rooms with kitchens), loyalty program or perks, and proximity to key attractions or location highlights.
Next, you’ll want to audit other hotels in your market to see how they stack up in all of those same categories listed above. A good way to start is to go to an OTA, search for your market, and apply a star rating or review score to get a list of hotels that are somewhat similar to yours. Using this broad list as a starting point, you can compare each hotel’s offerings to your own and decide whether it’s a possible compset candidate. Alternatively, if you want to involve your team, try assigning one potential competitor to each front desk agent and let them contribute to the research!
For example, you might find a hotel located just a couple blocks away with ADRs on par with yours, but maybe that hotel is a large chain hotel that caters to business travelers and was last renovated in the 1980s while your hotel is a brand new boutique with 20 rooms. That chain hotel is probably not the best match for your competitive set.
After studying many potential hotels, you can cut down your list to the four to ten best competitors that have the closest overlap to yours in as many categories as possible. Although you probably won’t find ten hotels that are virtually identical to yours, ideally, you can find at least a couple of hotels with very similar offerings. You’ll undoubtedly end up with some hotels that aren’t perfect matches; if you’re one of the few hotels in your area with a pool or a spa, it’s okay to include hotels that lack those facilities if they’re similar to your hotel in other ways.
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Why It’s Important to Choose the Right Compset
Revenue managers use competitive sets to benchmark their hotel’s performance versus similar hotels in the market. If you’ve selected a compset that includes hotels that have much lower ADR, very different amenities, or different guest personas than your hotel, then your comparisons will be skewed and you’ll miss out on the valuable insight compset data can provide. Key metrics (KPIs) like ADR index, market penetration index, and revenue generation index will paint an inaccurate picture of your real-time property performance if your primary comp sets hotels aren’t true competitors. Comp sets can also change in real-time. Imagine you have two identical hotels and one receives a $10M renovation. The dated hotel might look like it has better profitability in the construction year; however, it could never expect to achieve the same ADRs as the upgraded property. Renovations are one example of an area where hoteliers sometimes forget to include critical information that could make massive impact on their business and render their pricing strategy ineffective.
For instance, if your hotel is a 3-star airport hotel near Miami International Airport, but your compset includes 4- and 5-star hotels on Miami Beach, your ADR will probably always be much lower than your compset, so you’ll always have a low ADR index. It might seem like your hotel is consistently underperforming. However, when you update your compset to include other 3-star airport hotels, you might find that your ADR index is just over 100 on most days of the week, signaling that you’re capturing your fair share of ADR, but that you have some opportunity to capture more rate on weekends. This insight only becomes evident when you compare your performance to a compset of the most relevant hotels.
Common Errors Hotels Make When Selecting Their Comp Set
As illustrated in the example above, the most common mistake that hotels make when selecting competitive set hotels is simply not choosing hotels that are true competitors. It can be tempting to group your hotel into an aspirational compset with hotels that offer more upscale amenities or are located closer to top attractions. On the flip side, some revenue managers might want to choose hotels with lower ADR, worse review scores, and fewer amenities to make their own performance look better. But choosing the wrong compset can dramatically affect the value that benchmarking data can provide, so if you want to set your hotel up for success, it’s crucial to choose hotels that are most like yours, using an objective lens.
But picking the wrong hotels isn’t the only potential pitfall when selecting a compset; some hoteliers might think they can create a compset once and never have to look at it again. In reality, hotels change all the time, and your compset is never truly static. One best practice is reassess your compset every six months; this strategy helps you avoid measuring your hotel against a compset that contains hotels that have closed, rebranded, renovated, or made some other significant changes, and it ensures you have a chance to add new hotels that may have recently opened.
How to Use Comp set Monitoring to Improve your Hotel's Performance
Once you have a good compset in place, you can begin to uncover opportunities to boost your own performance. Software is your friend here; you can plug the compset hotels into your dynamic pricing tool, your STAR reports, and even free tools like the market insights feature in the Expedia extranet. Let technology do the heavy lifting when it comes to tracking your compset’s rates so you can focus on the analysis.
One effective method to compare your rate and occupancy performance to that of your compset is through an index. Index metrics, like ADR index, compare your ADR to your compset’s ADR on a scale of 100. If your ADR was $95, and your compset ADR was $100, then your ADR index was 95. You should aim to achieve an ADR index of at least 100 if you want to capture at least as much ADR as your compset. An index over 100 means that you are capturing higher rates than your compset. These index metrics can help you spot opportunities to raise or decrease rates. For example, if you notice that your ADR index for your Group segment is always far below 100, then it’s important for your sales team to know they may be leaving some money on the table, since groups are paying higher rates at your competitors. To improve your performance over time, you can set goals with specific metrics that measure your performance relative to your compset.
Building a competitive set isn’t just a fun exercise to get acquainted with your competitor properties; your compset can be a powerful tool that helps you contextualize and track your performance against similar hotels in your market. When it contains the right hotels, your compset can help your hotel achieve goals like higher ADR and occupancy by providing a deeper understanding of market dynamics.